Stock to sell: Bharat Forge share price was in focus after Motilal Oswal Financial Services (MOSL) said it is Neutral on defense stock Bharat Forge with a target price of ₹1,290, signalling 7% downside from previous close.
While the defense company’s transformation into a diversified defence and aerospace heavyweight is gaining clear momentum, the brokerage warns that the near-term outlook is cluttered with multiple headwinds across exports, Europe, aluminium forgings and valuation comfort.
“While 3Q is likely to be similar to 2Q, we expect the demand environment to start improving from 4Q onward. We factor in BHFC to post a CAGR of 11%/14%/28% in revenue/EBITDA/PAT over FY25-28E. However, despite factoring in all the positives, the stock trading at 54x/38x FY26E/FY27E consolidated EPS appears fairly valued. We reiterate our Neutral rating with a TP of INR1,290 (based on 32x Sep’27E consolidated EPS),” said the brokerage.
Bharat Forge’s share price was largely unchanged on Wednesday, December 10, edging up by just 0.5%. The defence stock has gained 4.5% over the past month, 16% in the last three months, 4% in the past six months and 2% over the past year. Over a longer horizon, however, it has delivered strong multibagger returns, rising nearly 160% in the last five years. The defense stock touched a 52-week high of ₹1,460.70 last month, while its 52-week low stands at ₹919.10, recorded in April 2025.
What MOSL said on Bharat Forge
Bharat Forge’s long-term defence story remains compelling, but MOSL argues that the market has already priced in much of the optimism. Here is a detailed look at why the brokerage stays cautious.
1. Valuations Too Rich
MOSL’s biggest concern is valuation. Bharat Forge is trading at 54x FY26E EPS and 38x FY27E EPS, which the brokerage believes already assumes an almost flawless execution across defence, aerospace and forgings. Such stretched multiples leave little room for error at a time when several business segments are still stabilising.
The report notes that the current price “assumes smooth delivery across defence, aerospace and metal-forming verticals, leaving little cushion for execution risks.” MOSL stresses that even minor delays in defence orders or slower recovery in other segments can quickly make these valuations appear excessive, turning the stock into a high-risk proposition in the near term.
2. Export Demand Weak
A significant drag on Bharat Forge’s near-term earnings potential is the continued weakness in the US Class-8 truck market, historically one of the company’s most profitable export drivers. Despite expectations of recovery, demand has stayed muted, with fleet operators delaying order placements and freight economics remaining soft.
MOSL does not expect a meaningful revival before the second half of 2026, which leaves a prolonged gap in export visibility. It wrote that “near-term demand in the US heavy truck market remains subdued, and a sustained revival appears unlikely before late 2026.” With one of its most dependable verticals stuck in a downcycle, the company faces revenue pressure at a time when other segments are not scaling fast enough to compensate.
3. Europe Still Weak
The company’s European subsidiaries continue to drag on overall margins due to structurally higher labour and energy costs, ageing manufacturing setups, and weaker OEM demand. Despite several rounds of internal restructuring, the improvements have been inadequate to lift profitability meaningfully. MOSL expects clarity on the restructuring roadmap only by Q4 FY26, meaning Europe will remain a margin headwind for several more quarters.
4. Aluminium Challenges
The aluminium-forging business—expected to benefit from the structural shift toward EVs—is also facing challenges. Bharat Forge is tied into a legacy low-margin order, limiting profitability in the near term. Meanwhile, its subsidiary K-Drive Mobility is restricted by a five-year non-compete clause in North America, blocking entry into a key EV forgings market. MOSL believes improvements will come, but the pace is too gradual to provide any meaningful earnings lift over the next few quarters.
5. Defence Scaling Slow
Even though Bharat Forge has an impressive ₹1.14 lakh crore defence order book—executable over the next three to four years—MOSL notes that revenue conversion will take time. Key programmes such as the ATAGS artillery gun order are expected to enter production only in FY27, delaying their earnings impact.
Aerospace revenue is rising, but from a small base, and is not yet strong enough to counterbalance weaknesses elsewhere. The brokerage highlights that while defence offers excellent visibility, the timing mismatch means near-term earnings remain subdued, leaving the stock exposed to volatility until these programmes scale more meaningfully.
Technical View
On the technical front, Aakash Shah, Technical Research Analyst at Choice Equity Broking, has issued a Buy call on Bharat Forge with an entry at ₹1,388, a stop-loss at ₹1,340 and a target of ₹1,500.
Bharat Forge continues to show strength even after a mild pullback, trading near ₹1,386 and holding above key moving averages. Shah noted that the stock’s broader structure remains firmly bullish, supported by a pattern of higher highs and higher lows. As he explained, “The alignment of major EMAs indicates strong upward momentum, with dips consistently attracting buyers.”
Strong support is placed in the ₹1,345–1,330 zone, backed by the 50-day EMA. On the upside, a breakout above ₹1,475 could open the move toward ₹1,500–1,520.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
